Fixed Deposits and Public Provident Fund are two of the safest investment vehicles accessible to Indians. Both are excellent choices for risk-averse investors. But how do we decide on one of the two to pursue? Here is a help to understand both the differences and the similarities.
What is a Fixed Deposit (FD)?
A fixed deposit (FD), sometimes known as a term deposit, is an investment tool that allows consumers to store their funds while earning income. The interest rate on a fixed deposit is always more significant than the interest rate on a savings account. The interest rate and deposit amount are set throughout history in a limited deposit account, as the name implies. FDs are accessible from all banks, commercial and small financing, and non-banking financial institutions.
Who Should Make Fixed Deposit Investments?
A fixed deposit might be a good investment choice for anybody seeking a low-risk investing alternative. The returns are computed at pre-determined interest rates, and changes in market conditions have no impact on an existing customer’s interests.
In the middle of COVID-19, when the market is so volatile and hazardous, you may want to consider investing in a bank or firm fixed deposit if you’re not ready to put your money at risk. However, when a bank FD carries up to Rs. 5 lakh of DICGC deposit insurance coverage, a firm FD would be low in comparison. Given the present situation, we recommend putting your money in a bank (preferably one of the local financing banks currently giving roughly 8-9 per cent interest).
Investing in FDs would also help you save up to Rs. 1.5 lakh in income tax every year (with a 5-year lock-in period).
What exactly is PPF (Public Provident Fund)?
The Public Provident Fund (PPF) is a government-backed tax-saving investing vehicle. The Ministry of Finance introduced this program more than 50 years ago, and it is still popular among investors who want to avoid market risks. PPF is completely safe since the government ensures it. Although this is a hallmark product of the Government of India, certain big banks also offer it as a product. These banks’ PPF interest rates may vary and be more remarkable when compared to India Post’s PPF rates.
Who Should Make PPF Investments?
If you presently do not have a large sum to invest and seek a risk-free route with decent returns, PPF will work well for you. However, unlike FDs, PPFs have a 15-year lock-in duration.
As a result, if you are willing to keep a part of your money locked up for 15 years, the public provident fund is your program. The returns are assured, with interest rates often more significant than FD rates offered by prominent banks.
It suggested having extra cash on hand because of the continuing Corona crisis. As a result, you may not want to start investing in PPF again right now and wait a few months. It would help if you used this time to examine your options before investing after stabilizing the situation.
The distinction between FD and PPF
The following points delineate the points of difference between the two investing channels open to Indian investors:
How is the interest on FDs and PPFs calculated?
In the case of a PPF, the interest on deposits is compounded annually. It is the same for all contributions made in this savings plan. In the case of fixed deposits, it may be computed in two ways: compound interest or simple interest.
FD Calculator and PPF Calculator to help you estimate the maturity amount. These tools are free to use and may be used several times to help investors choose the best alternative at various FD/PPF rates and tenures. Basic information such as FD interest rates or Public Provident Fund rates and deposit amount and term must be entered into the form. The calculator will provide the best estimate based on the inputs supplied.
Conclusion
Choosing between FD and PPF is dependent on the investor’s demands; thus, while selecting between these two, one should carefully examine the advantages and downsides of both vehicles.
While PPF is a perfectly safe choice with the Government of India’s guarantee, it does not provide liquidity for the first six years, after which partial withdrawals are permitted yearly beginning in the seventh fiscal year.
As a result, if the purpose is to keep the money secure for an extended period to be utilized later in life, PPF may be advantageous. If you want a low-risk investment with reasonable returns and the ability to cancel the account early, an FD is a far better alternative.